Stock markets drop after run higher

LONDON: Stock markets dropped Thursday on profit-taking after a recent run higher that has been fuelled by records on Wall Street.

New York’s indices powered ahead once more Wednesday as news that Canada and the United States were close to a fresh deal on reviving the North American Free Trade Agreement coincided with better-than-expected US growth data and a possible breakthrough in Brexit talks.

In trading Thursday, the pound held up versus the dollar after rallying thanks to the European Union’s top negotiator saying that the bloc was open to a unique deal with Britain, which raised hopes the country will leave the bloc with a working relationship.

“The pound is paring gains but continues to trade around four week highs against the dollar, with the currency having been buoyed on Wednesday by comments from Michel Barnier who claimed to be open to the idea of a bespoke Brexit deal for the UK, something the EU had appeared averse to previously,” noted Craig Erlam, senior market analyst at Oanda trading group.

For most of this year world markets have been under pressure as China and the US have threatened and imposed tit-for-tat tariffs that fuelled fears of a global trade war, while Washington has also picked fights with allies including the EU, Canada and Mexico.

But optimism has recently picked up. On Monday US President Donald Trump and his Mexican counterpart Enrique Pena Nieto announced a new trade agreement and on Wednesday came news that Canada was close to a deal, fuelling hopes for a NAFTA 2.0.

Trump and Canadian Prime Minister Justin Trudeau expressed optimism a deal was close and the White House plans to notify Congress on Friday of its intention to enter into a new free-trade agreement.

Also on Wednesday the Commerce Department said the US economy expanded more than initially reported in the second quarter thanks to a rise in business investment.

“If you think about the handbrake on sentiment over the past six months or so, it’s mostly about the handbrake on growth and the uncertainty that the trade wars have caused with a little added worry about what Brexit might look like,” said Greg McKenna, chief market strategist at AxiTrader.

“So, news overnight that we could have Canada in a new NAFTA deal by the end of this week and that the EU is ready to offer the UK an unprecedented deal is good news for markets. And for the global economy.”

The S&P 500 and Nasdaq chalked up a fourth straight day of records on the latest developments.

However, Asian dealers took a step back after a healthy run this week.

Tokyo ended Thursday up 0.1 percent but Shanghai sank more than one percent and Hong Kong lost 0.9 percent.

Singapore lost 0.5 percent, Seoul was off 0.1 percent and Sydney was marginally lower, while there were also losses in Wellington, Taipei and Mumbai. —AFP